Tuesday, November 07, 2006
The Stench Left By Income Trusts
The Conservative government’s “Tax Fairness Plan” is a phrase of contradiction when compared to the negative fallout of the government’s hasty, poorly conceived, deceptive, and thoughtless decision to destroy income and royalty trusts. This decision resulted in the vaporization of an estimated $20 - $34 billion from the personal banking and brokerage accounts of Canadians. The fallout will continue as distributions from these companies to its investors begin to decline as we get nearer to 2011. The unpropitious consequence is hardly mitigated by the government's simultaneous introduction of new tax reduction initiatives.
The government’s needless broad based destruction of so much of its constituents' personal assets is likely unprecedented in the history of Canadian governments. In hindsight, the cost of waste in the collective Chrétien and Martin governments now seems more like the passing of an unpleasant odour from a mild fart compared to the lingering stench left by the Conservative's “Tax Fairness Plan”. While this plan offers a few small plastic encapsulated toys as consolation prizes to the lower income seniors and little and no prizes to most middle income taxpayers, it is more akin to a massive tax increase for the investing public.
When Prime Minister Harper and Finance Minister Flaherty secretly met to discuss a resolution to the perceived income trust problem, they decided to use the shotgun approach that resulted in the destruction of billions of dollars in the savings of Canadians for the sake of a measly $500 million dollars in alleged lost income tax. All of this despite previous assurances from Prime Minister Harper that he would not touch income trusts.
Was there a problem brewing with income trusts? Yes, you bet. Had Telus, BCE, Encana, and potentially the big banks followed down the income trust path, billions in tax dollars might have been lost. It was the potential for future conversions to income trusts that PM Harper and finance minister should have focused their attention, not the current income trusts. A simple passage of law grandfathering income trusts effective January 1, 2007 would have more than adequately resolved the problem. Instead, PM Harper and Mr. Flaherty chose to crucify every existing and future income and royalty trust (except REITs) along with the Canadians who held them in their RRSP's, RRIF's, LIF's. Those who held them in their non-sheltered accounts will fare better as they have the option to claim capital losses.
Mr. Flaherty was well aware that corporations who had converted to trusts long before October 31, 2006 posed no threat to the country’s tax regime. That is clear from his statements in the House of Commons on November 6, when he said:
"...the information we used with respect to decision making on the income trust issue was the information that was available about the growth of income trusts, about the reality that we were seeing income trusts being chosen as an instrument of conversion by companies in the telecommunications business, that there were many more to come, and the kind of economy that we would end up having in Canada, not to mention the tax fairness issue where large telecommunications companies could avoid taxes in excess of $1 billion."*
That being the case, where is the rationale to kill existing income trusts and where is the impetus to support a future Conservative government?
Kudos to the Liberals for supporting Canadians on this issue.
*Hansard 77 (2006/11/06)
The government’s needless broad based destruction of so much of its constituents' personal assets is likely unprecedented in the history of Canadian governments. In hindsight, the cost of waste in the collective Chrétien and Martin governments now seems more like the passing of an unpleasant odour from a mild fart compared to the lingering stench left by the Conservative's “Tax Fairness Plan”. While this plan offers a few small plastic encapsulated toys as consolation prizes to the lower income seniors and little and no prizes to most middle income taxpayers, it is more akin to a massive tax increase for the investing public.
When Prime Minister Harper and Finance Minister Flaherty secretly met to discuss a resolution to the perceived income trust problem, they decided to use the shotgun approach that resulted in the destruction of billions of dollars in the savings of Canadians for the sake of a measly $500 million dollars in alleged lost income tax. All of this despite previous assurances from Prime Minister Harper that he would not touch income trusts.
Was there a problem brewing with income trusts? Yes, you bet. Had Telus, BCE, Encana, and potentially the big banks followed down the income trust path, billions in tax dollars might have been lost. It was the potential for future conversions to income trusts that PM Harper and finance minister should have focused their attention, not the current income trusts. A simple passage of law grandfathering income trusts effective January 1, 2007 would have more than adequately resolved the problem. Instead, PM Harper and Mr. Flaherty chose to crucify every existing and future income and royalty trust (except REITs) along with the Canadians who held them in their RRSP's, RRIF's, LIF's. Those who held them in their non-sheltered accounts will fare better as they have the option to claim capital losses.
Mr. Flaherty was well aware that corporations who had converted to trusts long before October 31, 2006 posed no threat to the country’s tax regime. That is clear from his statements in the House of Commons on November 6, when he said:
"...the information we used with respect to decision making on the income trust issue was the information that was available about the growth of income trusts, about the reality that we were seeing income trusts being chosen as an instrument of conversion by companies in the telecommunications business, that there were many more to come, and the kind of economy that we would end up having in Canada, not to mention the tax fairness issue where large telecommunications companies could avoid taxes in excess of $1 billion."*
That being the case, where is the rationale to kill existing income trusts and where is the impetus to support a future Conservative government?
Kudos to the Liberals for supporting Canadians on this issue.
*Hansard 77 (2006/11/06)
Labels: income trusts, taxes
